Think about this for a moment: in the past 2 years, a half dozen fast casual companies have gone public and have experienced average first-day price increases of 99.7%.
To put that in perspective, the average first-day increase for a fast casual stock has been about the same as the increase when Chipotle went public in 2006.
Compare that to IPOs for non-fast casual restaurant brands since 2011 and you’ll find that they had average first-day price increases of just 17%.
The strong investor appetite for fast casual stock is unquestioned and has led to exceptionally high valuations.
These high valuations combined with loosened regulations are drawing more restaurant brands, many of which are smaller and in early stages of their lifecycles, to IPOs.
Preparing for Pre- and Post-IPO Success
Despite investors’ intense interest in any concept that promises strong sales, the potential for development and steady growth, at the end of the day preparing for a successful IPO involves much more than just creating marketing hype.
And once a chain debuts on the market, it must prove to investors and customers that it can perform – and continue to perform well – if it wants to be rewarded.
While there’s no guarantee of success, there are two key things that a growing chain needs both before and after taking the company public.
- Open More Successful Locations: Growth chains need to prove to investors that they’re not just opening new locations, but rather that they’re consistently opening stores with high rates of return. When chains do that, investors know that the company has a proven site selection strategy and knows which markets to enter.
- Increase Year-Over-Year Sales: Positive same-store sales are critical for business growth and are driven by two primary elements – increasing the frequency of purchase and expanding the customer base. Achieving both elements requires a deep understanding of customers, which informs both menu and marketing decisions.
Reaching the Goal
While these two steps may seem completely obvious, they’re actually much harder to accomplish than many realize.
But they don’t need to be.
By using customer analytics, restaurant executives can develop detailed customer profiles that offer a wealth of knowledge not only about demographics/psychographics, but also about where their customers live and how far they’re willing to drive to any given location.
With this customer profile, they have the ability to search trade areas all across the U.S. to find other consumers that match the profile.
And when they find trade areas with large concentrations of consumers who have the same characteristics as their best customers, they’ve discovered fertile ground for new locations.
From there, executives can examine specific sites in order to identify the ones nearest to the greatest number of potential customers.
Taken a step further, by using customer profiles, it’s possible to tailor marketing efforts and messages as well as product offerings to specific audiences instead of basing decisions on generalizations about the “average” customer.
The Bottom Line
Companies that have volatile growth patterns are not going to attract the same attention from investors as those companies that have a clear growth forecast for the coming months and years.
If the growth chains are able to execute their projections, not only will the concept grow, but investors will also have confidence in the business.
If you’re interested in taking your restaurant chain public, talk to us and let’s make sure you’re taking the right steps for a successful future.